Weekly Market Review
in this section:
A Brief on Global & Local Markets, Investment Strategy.

Week in Review | 20 June - 24 june 2022

Global Markets Jump as Inflation Expectations Ease

Global equities staged a rebound last week after latest economic indicators suggest that inflation is starting to peak as commodity and energy prices wane from their recent highs. This has sparked optimism that inflation has cooled which could help quell the Fed’s hawkish rhetoric. All eyes will be on June’s CPI figures which would confirm whether we have a reached an inflection point for inflation when the data is released next month.

The S&P 500 index snapped a three-week losing streak to post its only positive weekly gain of 6.4% for the month. Similarly, the tech-heavy Nasdaq index rose 7.5% which is its largest weekly gain since March this year.

  • The S&P Global Flash US Manufacturing PMI fell to 52.4 in June 2022 from 57.0 in May, well below market expectations of 56.0 and pointing to the slowest growth in factory activity in recent years.
  • Inflation indicators – such as commodity and food prices – in the US appears to be coming off.
  • The 10-year treasury benchmark yield edged down to 3.1% levels on Friday since peaking above 3.4% in week prior amid weaker growth and tapering inflation expectations. 
  • Currently, a large part of the market is expecting the Fed to raise interest rates by another 75 bps in July’s FOMC meeting, with others expecting a minimum hike of 50 bps.

In Asia, the broader MSCI Asia ex-Japan index ended 1.4% higher propped-up by gains in China. The MSCI China index rose 4.5% boosted by remarks from President Xi Jinping who reaffirmed the country’s pledge to achieve its economic and social targets this year through various policy levers.

China has set its eyes on a GDP growth target of 5.5% this year. Though, the current consensus estimate is that China would only achieve a GDP growth of 4.3% due to multiple sporadic COVID lockdowns which have impacted growth. As such, China would need to play catch-up and expand by at least 6.5% in the 2H2022 in order to still achieve an overall GDP target of 5.0%.

Meanwhile, Singapore has announced a S$1.5 billion support package aimed at protecting lower-income groups from the effects of rising inflation. These include a one-off payment of S$300.00 for 1.5 million Singaporeans as well as household utility credits. The planned GST hike slated in 2023 is expected to proceed as planned according to the government.

On portfolio action, we continue to add our exposure in China through names like Meituan, Baidu, and Alibaba. We locked in gains from our position in China Tourism Group Duty Free Ltd on the back of margin pressure concerns. Cash levels range between 20.0- 25.0% for our regional portfolios.
Updates on Malaysia

On the local front, the benchmark KLCI fell 1.4% amidst cautious sentiment and profit-taking activities. Selling pressure was seen in sectors like banks and plantation which have been darlings of the stock market this year.

Crude palm oil prices (“CPO”) have come off from its recent highs and erased all its YTD gains due to flip-flop policies by Indonesia which saw higher than expected inventory levels flooding the market.

In key news, the government has announced the removal of the ceiling price for chicken and chicken eggs, as well as subsidies for cooking oil in bottles of 2kg, 3kg, and 5kg, from 1 July 2022. The move was to help ensure adequate food supply in the market. However, it was later announced that the price of chicken would not be floated, and a new ceiling price will be announced.

Other measures include a one-off cash aid of RM100.00 to lower income groups. Electricity tariffs for the 2H2022 will also be maintained to help individuals and businesses cope with rising costs.

Last week, the government also decided to not extend the vehicle sales and services tax (“SST”) exemption for purchase of vehicles beyond 30 June 2022. However, buyers were given a grace period until 31 March 2023 to enjoy the tax exemption if they made reservations for vehicles before the aforementioned deadline.

On portfolio positioning, we continue to remain defensive and have been slightly trimming our exposure in banks. Cash levels range around the high teens to below 30.0% for our local portfolios, with Shariah funds sitting at the higher end.
Fixed Income Updates & Positioning

The Asian credit space endured yet another uninspiring session as investors continue to contend with: (i) further rating downgrades in China, as well as (ii) concerns over inflation and slowing growth across the broader market. On a week-on-week basis, credit spreads for Asian IG widened by 3 bps (to +155 bps) while the HY segment widened by as much as 128 bps (to +1,195 bps).

Fund flows continue to be lacklustre in the week, with emerging markets posting a net outflow of US$2.2 billion cross both hard currency and local currency bond funds. Asia, excluding Japan, contributed US$226.0 million to the total outflow, marking the region’s 11th consecutive week of outflow.

Sentiment for the Chinese property sector were further bogged down in the week following news of Country Garden’s rating downgrade; effectively losing its IG status and currently treading in HY territory. Moody’s downgraded the company’s rating to Ba1 last week whilst maintaining its negative outlook, citing declining property sales, and deteriorating financial metrics amidst the current challenging backdrop. Currently, both Moody’s and S&P has Country Garden rated as a HY issuer, while Fitch continues to have Country Garden on within IG ratings at BBB- with a negative outlook.

Following the rating action, Country Garden’s bonds fell by 2 to 4 points across the curve to trade around the 40.0-50.0 cent levels to the dollar. The news also affected other property names, including quality ones such as CIFI and Yanlord among others, which were down by up to a point last week.

Elsewhere, Foshan International – a Chinese conglomerate with major interest in finance, tourism, and pharmaceutical – was also in focus last week after Moody’s placed their Ba3 credit rating on review for downgrade. This further exacerbated the sell off within the HY space amid concerns over the company’s ability to refinance as well as the contagion effect stemming from China’s property woes. According to reports, Foshan has a combined US$2.9 billion worth of onshore and offshore debts that are due in 2022.

While Foshan has offered to buy back some of their dollar and euro bonds at par value, it did little to reignite confidence as the company’s bonds fell by as much as 20 to 30 points across the curve last week. We currently do not have any exposure to this name.

On portfolio action, we participated in a few IG-rated issuances in the primary market, namely from GS Caltex as well as an SGD Tier 2 bond by HSBC. In addition, we also added Parkway Pantai PERP that is callable in July 2022, and USD AT1 by DBS Bank for some of our regional portfolios. Our defensive stance remains largely unchanged at this juncture, and we intend to stay prudent in terms of our credit selections.

Back home, local government bonds enjoyed better buying support in the week following the rally seen in US treasuries alongside global rates. MGS yields edged lower by some 10 to 21 bps across the curve, where the bulk of flows were concentrated on papers of medium tenure. The 20-year MGS ended the week 21 bps lower to 4.64% as the notable outperformer, while the 3- and 10-year benchmarks also trended lower to 3.49% and 4.21% (from 3.59% and 4.34% in the previous week) respectively as of Friday’s close.

On primary news flow, markets were introduced to a 5-year GII auction of RM4.5 billion in size last week, in which the issuance a strong bid-to-cover ratio of 3.1x mainly driven by participation from banks. The issuance recorded an average yield of 4.16% before closing Friday at 4.06% in secondary trading. The next government bond auction would be the 30-year MGS reopening this week. The issuance size is estimated to be around RM4.0 billion, including private placement.

The PDS segment also saw a few notable primary rollouts last week, including:
  • Perusahaan Otomobil Nasional (“PROTON”) – issued RM700.0 million in Sukuk across 5- and 7-year tranches at 4.99% and 5.31% respectively, which is some 100 bps above their respective MGS benchmarks.
  • Danum Capital – Khazanah Nasional’s special purpose vehicle (“SPV”) issued RM2.0 billion worth of bonds via its 3- and 7-year offering. The bonds were priced at 4.02% and 4.68% respectively. 
  • Tenaga Nasional Berhad (“TNB”) – issued RM4.0 billion worth of bonds across multiple tranches ranging across 7- to 20-year tenures.

In other news, Malaysia’s Consumer Price Index (“CPI”) rose 2.8% year-on-year for the month of May, surpassing initial estimates of 2.6% as well as April’s reading of 2.3%. Food prices – which accounts for some 30.0% of CPI components – rose to 5.2%, the highest since November 2011; while transport prices also jumped by 3.9% from a year ago.

Bank Negara Malaysia (“BNM”) has maintained its CPI guidance of 2.2 to 3.2% for the full year of 2022. Though given persistent inflationary pressure, we expect CPI reading to hover nearer to the top range of the central bank’s forecast. With this, BNM is also likely to step up its policy normalisation efforts in its upcoming meetings, where markets are currently expecting a cumulative interest rate increment of 50 bps for 2H2022. We will continue to keep a close watch on further developments on this front.

In terms of portfolio action, we took the opportunity to participate in a few of the primary issuances aforementioned – namely from Danum Capital and TNB – for some of our domestic fund. Cash level currently ranges around 4.0-12.0% depending on portfolios.
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Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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